- Enquiry
- Quote
- Agree
- Work
- Invoice
- Paid
The Fees You Absorb
Being paid is not free, and the costs are distributed across so many small deductions that most firms have never added them up.
For a software-side reference alongside this discussion of invoicing, records, and payment administration, Monitask provides guidance on time tracking software.
QuickBooks reports 59% of small businesses paying additional fees simply to access money they had already earned. (Vendor research — Intuit sells accounting and payment products, and the figure is theirs.)
The four charges
Card processing. A percentage plus occasionally a fixed amount per transaction, varying by card type and by whether the card is present.
Faster settlement. Paying to receive funds in a day rather than several. This is a charge for time, and it is the one that most clearly indicates a cash flow problem being managed rather than solved.
Invoice finance. Advancing a proportion of an invoice's value before the customer pays. Common facilities advance 80–90% within a day or two, at a cost that depends on the arrangement. (Vendor descriptions; terms vary substantially.)
And the cost of chasing, which is hours rather than a fee and is the largest of the four for a small firm because nobody invoices for it.
What each is actually buying
Card processing buys convenience and, in practice, speed. A customer who can pay on the spot frequently does, and handing over the invoice with a means to pay it converts a two-week wait into a same-day payment for a percentage.
That trade is usually worth it and it is the one fee on this list that reliably pays for itself.
Faster settlement buys days. Whether that is worth the cost depends entirely on what the days are for — covering a supplier payment is different from impatience.
Invoice finance buys working capital, at a price, and it substitutes for the deposit you did not take or the terms you did not shorten.
The cheaper alternatives, in order
A deposit. Free, and it removes the largest part of the problem by funding the materials before you buy them.
Shorter terms, agreed at quoting stage rather than imposed at invoicing.
Invoicing promptly, which costs nothing and moves the date by more than most fee arrangements do.
And invoices that cannot be queried, which removes the delays you are otherwise paying somebody to bridge.
All four are free and all four are less used than the paid alternatives, because the paid ones require a decision once and the free ones require a habit.
Passing charges on
Legal and contractual limits apply and vary by jurisdiction — surcharging rules for consumer card payments in particular are restricted in many places. Check the position where you work.
Where it is permitted, decide before quoting rather than at the point of payment. A charge that appears at checkout is a surprise; a charge stated in the terms is a term.
And weigh whether it is worth it. A percentage recovered against a customer who then pays by transfer three weeks later is a poor trade.
The one worth measuring
The hours.
Everything else on this list has a number on a statement. The time spent chasing does not, and for a one-person business it is routinely the largest cost in the entire cycle.
Count it for one month. The record you keep for pricing can hold a line for it, and the total is usually the argument that changes how somebody handles the earlier stages.
Bank transfer, and why it is not free either
No percentage, and two other costs.
Reconciliation. A payment arriving with no reference, or with the customer's own reference, has to be matched by hand — and on a busy month that is where errors enter the ledger.
Put the reference on the invoice and make it the invoice number, not the customer name. Ask for it in the payment details line rather than assuming.
And delay. Transfers between banks are usually same day and are not always, and international payments carry both timing and conversion costs that are frequently deducted from your side without warning.
For work across borders, state which party bears the transfer charges in the terms, because the default is that somebody is surprised.
Discounts for early payment
A discount is a fee by another name, and it is worth comparing to one.
Two per cent for payment in seven days against thirty is an expensive rate of interest when annualised, and it is worth doing anyway if the alternative is invoice finance at a higher cost.
Industry compilations suggest firms offering early payment discounts are paid meaningfully sooner. (Figures vary by source and are usually vendor-compiled.)
Where it goes wrong is offering it by default. A discount available on every invoice becomes the price, and the customer who was going to pay on time takes it too.
Adding it up once
Take one year and total everything.
Card fees from the statements. Any settlement or finance charges. And an estimate of the hours spent chasing, at whatever your work is worth.
The number is usually larger than expected, and it is almost always larger than the cost of the free alternatives — a deposit policy, shorter terms, an hour a week set aside for invoicing.
Firms that have done this arithmetic once behave differently afterwards, because the cost stops being a series of small deductions and becomes a figure that can be compared to something.
The short version
- 59% of small businesses report paying extra fees just to access money they had already earned — vendor research
- Four charges: card processing, faster settlement, invoice finance, and the unbilled hours of chasing
- Card processing usually pays for itself by converting a two-week wait into a same-day payment
- Faster settlement buys days and invoice finance buys working capital, both substituting for a deposit not taken
- The free alternatives — deposit, shorter terms, prompt invoicing, unqueryable invoices — are less used because they need a habit rather than a decision
- Count the hours spent chasing for one month; it is usually the largest cost and the one nobody measures
For broader background on invoicing, records, and payment administration, see Accounting Today.